That’s it. It’s over. The HY bubble has burst.
Ok, so that’s too dramatic. Who knows, there might be a bit more compression left in the old tank depending on how central bankers act over the next couple of months and depending on the headlines out of OPEC, but generally speaking, it looks like oil’s plunge earlier this month might have marked the beginning of the end.
You’ll recall that HY has staged a remarkable rally off the 2016 deflationary doldrums. This has been catalyzed by rising crude prices. When oil took a dive during CERAweek, HY-oil correlations spiked, spreads widened, and popular high yield retail vehicles saw some of the biggest outflows on record.
Well, it looks like it’s all coming to an unceremonious end.
Consider the following chart and some accompanying commentary from Bloomberg which should serve to underscore the notion that if you’re still hanging around in junk, you might not get another chance to hit the exits.
- The high yield primary market was quiet and tentative after pricing seven deals for $4.185b last week.
- Sector was under pressure as yields continued to rise amid wobbly stocks and plunging oil
- Oil prices dropped 2% over the last six sessions and dropped in four of the last six; it was down 13% from an 18-mo. high of $54.45 in four weeks
- Sector weighed down by investor exodus from high yield funds as retail funds have unwound all of the inflows since November elections
- Retail funds report an outflow of $7.2b YTD vs an inflow of $8.6b YTD 2016
- Lipper estimates an outflow of $514m WTD after the second biggest outflow on record of $5.68b week ended March 15
- Bloomberg Barclays High Yield Index spreads closed at +404 vs +401, hit a 32-mo. low of +344 early March
- YTW closed at 6.10% vs 6.07%, hit YTD high of 6.14% mid March; dropped to a 28-mo. low of 5.51% March 1
- BBs spreads closed at +270 vs +268, hit multi-year tight of +221 March 2
- YTW closed at 4.73% vs 4.72%, hit a 3-mo. high of 4.87%; dropped to a 30-mo. low of 4.28% also March 2
- Single-Bs spreads closed at +399 vs 395, dropped to a 32-mo. low of +328 March 1
- YTW closed at 6.05% vs 6.01%, hit a 3-mo. high of 6.09% mid March
- CCCs spreads closed at +717 vs +712, hit a 29-mo. low of +642 March 2
- YTW closed at 9.24% vs 9.18%, hit a 7-week high of 9.26%; dropped to a 28-mo. low of 8.48% March 2